Tracking the general shape of the state budget has been made more complicated by the addition of the rainy-day fund under the governor's Prop 2 of 2014. Basically, there are now two reserves for the general fund - which is the operating budget of the state. There is a regular reserve that has always been there and a separate rainy-day fund to which revenue is diverted. The theory is that if you have a rainy-day fund as a separate "thing," and if revenue is diverted there, the legislature won't somehow see it or spend it. Think of the general fund as a kind of household checking account into which income is deposited and from which expenses are drawn. At the end of the year, if you have spent more than you put it, the balance in your account will fall or even become overdrawn. Spending more than you receive is a deficit. If you spend less than you put in during the year, your balance will rise. That outcome is a surplus.
As we have also noted in prior postings, there is a tendency for loose language about the budget to prevail. Surpluses and deficits are flow concepts. The balances at a point in time, such as the beginning or end of a fiscal year, are simply reserves, which can be positive or negative.
For his January proposal for fiscal year 2016-17, which begins July 1, 2016, the governor projects a regular reserve of $5.2 billion which falls during the year (because spending exceeds direct GF revenue)to $3.2 billion. So there is a deficit in the general fund directly of -$2 billion.
But wait! The rainy-day fund rises by $3.6 billion. So there is a de facto surplus of +$1.6 billion when you net the deficit in the general fund and the surplus in the rainy-day reserve.
Note that all of these numbers are forecasts. All occur on or after July 1, 2016, almost six months from now. Some go as far as June 30, 2017, almost 18 months from now. So they could be (would be) wrong, even if the legislature were to grant the governor exactly what he proposes (which won't happen). In short, the de facto surplus - only about 1.3% of general fund expenditures, could be quite different in actual result, possibly even a deficit.
The net reserve (regular + rainy day) is rising as a percent of expenditures from 8.3% to 9.1%. So there is no immediate crisis in sight. However, if you watched the governor's news conference, he had a chart showing Bad Things happening in the event of a recession. And generally the theme of the new conference was the governor cautioning the legislature against starting new programs. He also opposed a possibly ballot measure that would extend the income tax under Prop 30 and exempt those revenues from diversion to the rainy-day fund.
Governor’s General Fund (GF) Budget
Proposal for
2016-17 $millions
Regular GF reserve July 1, 2016 +$5,172
Direct GF revenue
during 2016-17[1] +$120,633
GF expenditures
during 2016-17 -$122,609
Direct GF surplus/deficit[2] -$1,976
Regular GF reserve June 30, 2017[3] +$3,197
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Rainy-day reserve
As of July 1, 2016 +$4,455
As of June 30, 2016 +$8,011
Surplus/deficit in
rainy-day fund[4] +$3,556
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De facto GF surplus/deficit +$1,580
Note that surplus is
1.3% of GF expenditures[5]
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[1]Revenue not
diverted to rainy-day fund.
[2]+$120,633-$122,609
[3]+$5,172-$1,976
[4]+$8,011-$4,455
[5]+$1,580/$122,609
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Total Reserves
July
1, 2016 June 30, 2017
Regular GF reserve +$5,172
+$3,196
Rainy-day fund +$4,455 +$8,011
Total reserves +$9,627 +$11,207
De facto GF surplus/deficit[6] +1,580
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[6]$11,207-$9,627 = +$1,580
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Note: Total reserves as
percent of expenditures:
As of end of 2015-16 8.3%
As of end of
2016-17 9.1%
